for the Period 10/01/04 -
3/31/05 ..................................................................................... 60

T

he operation of our nation’s
government depends on the collection of tax revenue. With the fiscal
constraints presently facing the entire Federal Government, TIGTA’s role of
promoting the efficiency and effectiveness of tax administration, and
safeguarding the collection of taxes is as important as ever.

I was confirmed by the Senate as TIGTA’s new Inspector
General during the first half of this semiannual reporting period. Since that
time, I have identified several priorities for TIGTA:

· Maintain
our focus on overseeing Internal Revenue Service (IRS) efforts to modernize its
business systems;

· Enhance
our ability to protect tax administration from corruption;

· Assist
the IRS with improving tax compliance initiatives; and

· Monitor
IRS usage of private debt collection agencies.

In addition to these priorities, TIGTA will continue its
work in other areas, including issues related to the security of IRS employees,
facilities, and information systems; the prevention of erroneous and improper
payments by the IRS; the IRS’ processing of tax returns and implementation of
tax law changes; customer service; and the integration of performance and
financial management at the IRS, to name a few. These are all important
oversight activities that will continue to be pursued vigilantly.

I am proud to report that a TIGTA recommendation to require large companies and tax-exempt
organizations to file their returns electronically became law during this
reporting period. This will take effect in the 2005 Tax Year and will apply to
businesses with assets exceeding $50 million
and tax-exempt organizations with assets exceeding $100 million. The $50
million and $100 million thresholds will be lowered over time.

Also, between October 1,
2004, and March 31, 2005, we identified more
than $28.3million
in cost savings, and more than $12 billion in
increased or protected revenue by addressing IRS issues.

TIGTA’s achievements in combating fraud and corruption have enhanced
the integrity of tax administration. Several investigations related to IRS usage
of contracted lockbox facilities to receive and process tax remittances have
resulted in significant prosecutions. In one case, six former employees of
Mellon Financial Services were indicted this year in Pennsylvania for initially
hiding, and then destroying, approximately 80,000 unprocessed Federal tax
returns, vouchers, and checks in an attempt to conceal their inability to fulfill
their contractual requirements with the IRS. A second TIGTA investigation
revealed that a former lockbox employee stole 30
taxpayer remittance checks that totaled more than $2.7 million from an IRS
lockbox facility located in Texas. Both investigations illustrate the
importance of monitoring the IRS’ use of private agencies to collect tax remittances
or provide debt collection services.

TIGTA will continue working to protect and improve our
nation’s tax administration system. We are committed to helping the IRS overcome
current and future challenges to ensure that the collection of tax revenue is
done with efficiency, effectiveness, and integrity.

Sincerely,

J. Russell George

Inspector General

TIGTA’s profile

T

he Treasury Inspector
General for Tax Administration (TIGTA) provides independent oversight of
Treasury Department matters involving
IRS activities, the IRS Oversight Board, and the IRS Office of Chief Counsel. Although we are placed organizationally in the
Treasury Departmental Offices and report to the Secretary of the Treasury and
the Congress, we function independently from the Departmental Offices and all
other offices and bureaus within the Department.

Our work is devoted to
all aspects of activity related to the Federal tax system as administered by
the IRS. We protect the public’s confidence in the tax system by overseeing
the IRS as it strives to achieve its strategic goals, by identifying and

addressing the IRS’
management challenges, and by implementing the President’s Management Agenda
and the priorities of the Department of the Treasury.

Our primary functional offices are the Office of Audit (OA)
and the Office of Investigations (OI). Our Offices of Chief Counsel,
Information Technology, and Management Services support OA and OI efforts (see
organizational chart, next page). TIGTA conducts audits and investigations
designed to:

· Promote the economy, efficiency, and effectiveness of tax
administration; and

· Protect the integrity of tax administration.

.

TIGTA’s Statutory Mandate

Protect against external attempts to corrupt or threaten IRS employees.
Provide policy direction and conduct, supervise, and coordinate audits and
investigations related to IRS programs and operations.
Review existing and proposed legislation and regulations related to
IRS programs and operations and make recommendations concerning the
impact of such legislation or regulations.
Promote economy and efficiency in the administration of tax laws.
Prevent and detect fraud and abuse in IRS programs and operations.
Inform the Secretary of the Treasury and Congress of problems and
deficiencies identified and of the progress made in resolving them.

Authorities

TIGTA has all the authorities
granted under the Inspector General Act of 1978, as amended.[1]
TIGTA also has access to tax information in the performance of its tax
administration responsibilities and the obligation to report potential criminal
violations directly to the Department of Justice. TIGTA and the Commissioner
of Internal Revenue have established policies and procedures delineating
responsibilities to investigate potential criminal offenses

under the internal revenue laws. In
addition, the IRS Restructuring and Reform Act of 1998 (RRA 98)[2]
amended the Inspector General Act of 1978 to give TIGTA statutory authority to
carry firearms, execute and serve search and arrest warrants, serve subpoenas
and summonses, and make arrests as set forth in Section 7608(b)(2) of the Internal
Revenue Code (I.R.C.).

TIGTA Office
Locations Throughout

The Nation

TIGTA employees
include auditors, special agents and information technology support staff

The
IRS’ implementation of audit recommendations results in cost savings and
increased or protected revenue, reduction of taxpayer burden, and protection of:
taxpayer rights and entitlements; taxpayer privacy and security; and IRS
resources.

Each
year, we identify and address the major management challenges facing the IRS. These challenge areas for Fiscal Year (FY) 2005 are
outlined in the chart below:

IRS’ Major Management Challenges
•

Systems Modernization
•

Tax Compliance Initiatives
•

Security of the IRS
•

Integrating Performance and

Financial Management
•

Complexity of the Tax Law
•

Providing Quality Customer

Service Operations
•

Erroneous and Improper Payments
•

Processing Returns and

Implementing Tax Law Changes
•

Taxpayer Protection and Rights
•

Human Capital

Audit
emphasis is placed on statutory coverage required by the RRA 98, as well as on areas
of concern to the Congress, the Secretary of the Treasury, the Commissioner of
Internal Revenue, and other key stakeholders.

The following audit summaries highlight
significant audits completed during this

6-month reporting period that fall
into the IRS’ Major Management Challenges categories.

Systems Modernization

The IRS is currently engaged in the
Business Systems Modernization (BSM) Program to modernize its systems and
associated processes. All of the BSM projects initiated to date have
experienced cost overages and schedule delays. In

mid-2003, the IRS and the PRIME
contractor[3]
initiated four studies to help identify the root causes of these problems and
make recommendations to remedy them. Key IRS executives and stakeholders
reviewed the results of these studies, acknowledged BSM shortcomings, and
developed actions to address the studies’ recommendations and resolve
longstanding BSM issues. Collectively, these actions became known as the BSM
Challenges Plan.

We determined that the majority of recommendations
were not fully addressed by the BSM Challenges Plan. Also, the IRS did not
create a measurement plan to determine whether actions taken resulted, or will
result, in actual improvements in the BSM Program. Many BSM Challenges Plan actions were closed before all significant
activities were completed.

The BSM Challenges Plan Did Not Completely Address the
21 BSM-Related Study Recommendations

We recommended the IRS reevaluate those
recommendations that were not addressed by the BSM Challenges Plan to determine
whether corrective actions should be taken and create an overall measurement
plan to determine whether activities are leading to BSM Program improvements. The
IRS should also ensure stakeholders understand that additional work is
necessary to complete actions in the Plan, and new activities taken in
furtherance of the Plan should be tracked. IRS management agreed with our
recommendations and acknowledged there was significant work ahead in the BSM Program.

During this reporting period, TIGTA
analyzed the Custodial Accounting Project (CAP), which was designed to help
correct longstanding weaknesses in IRS
financial management systems. Our analysis of the CAP illustrates the
continuing need for improvement in the BSM Program. The BSM Office, the
contractor, and the end user were making progress to deploy the CAP. However,
the IRS and the CAP contractor did not adequately manage system testing of requirements
during its first release. For example, system requirements were not tracked
and, therefore, could not be tested successfully. In addition, the IRS
approved changes without always knowing which system requirements were affected
and accepted test results that could not be verified. IRS management agreed
with our recommendations and modified its approach to requirements management
for future CAP releases.

The Limited Issue Focused
Examination (LIFE)[4]
process has merit for reducing the
length of examinations. IRS’ Large and Mid-Size Business Division statistics
showed that LIFE cases, on average, were completed in 236 fewer days than
non-LIFE cases. However, efforts to incorporate this process into the
examinations of large businesses have made
little progress. As of September 2004, only about 4.2 percent of
the examinations initiated for large businesses involved the LIFE process.

TIGTA is concerned by the results
from the LIFE process. Statistics show LIFE cases were generating
significantly less additional recommended taxes than other large business
examinations. Our analysis indicated if the IRS allocated 5 percent of
the available examinations of large businesses to the LIFE process over the
next 5 years, the amount of recommended additional taxes could drop an
average of $349 million a year, or $1.7 billion over

5 years.

We recommended the IRS develop and
implement a plan for analyzing data on LIFE examinations that is reliable and
can help correct problems identified, clarify the integration of the Currency and Cycle Time Improvement
Initiative[5]
with the LIFE process, and ensure mid-level managerial reviews include
evaluating open cases and assessing whether the

LIFE process is being used in
examinations. IRS management generally agreed with our recommendations.

For Tax Year (TY) 2001, the IRS
estimated the gross tax gap[6]
attributable to the underreporting and underpaying of employment taxes was
$73.3 billion. However, the IRS has not used the Automated 6020(b)Program[7]
to address business taxpayer filing noncompliance throughout most of the past
decade due to various organizational changes, programming problems, and funding
issues. The number of direct hours the IRS applied to the Automated 6020(b)
Program steadily declined from a high of 43,209 in FY 1993 to a low of 1,151 in
FY 2001, before increasing to 6,542 in FY 2003 after the IRS centralized
administration of the Program. The declining trends in resources applied to the
Automated 6020(b) Program adversely affected the results. The amount of taxes
assessed by the Program declined from $206.8 million in FY 1998 to $3.6 million
in FY 2002, but then increased to $60.6
million in FY 2003.

Taxes
Assessed by the Automated 6020(b) Program, FYs 1996-2003

Source:
Collection Activity Reports (FYs 1996-2003).

To improve the effectiveness and
efficiency of the Automated 6020(b) Program for addressing business filing
noncompliance, we recommended the IRS: replace the computer system supporting
the Program with one that interfaces with its other systems; modify the dollar
criterion to select additional cases that may otherwise remain unworked; modify
the Program to add nonfiled excise tax returns; and evaluate the computation
used for assessing proposed unemployment tax assessments. IRS management agreed
with the recommendations.

To
improve IRS tax compliance initiatives, TIGTA reviewed pass-through businesses
during this reporting period. Pass-through businesses, such as partnerships
and S corporations, are not subject to income taxes, although they have a
significant impact on tax administration. For
TY 2001,$276.3 billion passed
through over 2.1 million partnerships to their individual partners. The
incidence of late-filed returns, measured as a percentage of total returns
filed, is nearly two times higher among partnerships and nearly four times
higher among S corporations, than it is among individual taxpayers, and it is rapidly growing. Between Calendar Years (CY) 2000
and 2003, the number of late-filed partnership returns increased

22
percent (from 167,000 to 203,000). During
the same period, the number of late-filed S corporation returns increased 28
percent (from about 450,000 to 577,000).

Late-filed partnership and S
corporation returns can have an adverse effect on the filing and reporting
compliance of the individual partners and shareholders. Our analysis of TY
2001 tax return data for more than 817,000 individual partners and shareholders
indicated late filing of returns by pass-through businesses may have contributed to 49 percent of these taxpayers
obtaining an extension of time to file their individual tax returns, 108,587
late-filed individual tax returns, and more than

$1
billion not being reported on individual income tax returns. We estimated more
than $354 million in individual income taxes was not paid on this unreported
pass-through income.

We recommended the IRS amend the tax
regulations and/or develop legislative proposals to address several key issues
that would encourage greater voluntary compliance with filing and reporting
requirements for pass-through entities. IRS management disagreed with some of
the recommendations presented in the report. The decision to implement the
remaining recommendations requires input and concurrence from the Department of
the Treasury. The IRS will consult with Treasury on these issues.

Also in the area of tax compliance, TIGTA
received requests from the IRS in November 2004 to evaluate a new process for
reviewing allegations of potential political activity by tax-exempt organizations.
There had been several media reports of allegations that the IRS Tax Exempt and
Government Entities Division was examining this type of activity for
politically motivated reasons just before the 2004 Presidential election. Based
on the extent of our audit work, we did not identify any indications that
inappropriate actions, such as political influence, may have been taken in
handling these referrals. We reviewed samples of information items that were
handled under the new process and determined the Exempt Organization (EO)
Referral Committee followed a consistent process when it reviewed the items,
regardless of the source of the allegation or the potential political
activity. We did not identify any case in which the same criteria were used to
select one information item for examination and to decline a similar item for
examination.

However, the IRS experienced delays
in expediting the classification and examination processes. As a result,
management did not send contact letters to organizations until
September 21, 2004,

6 weeks before the scheduled
elections. We believe contacting organizations so
close to the election and the late publicity about this project contributed to
the allegations of improper motivation on the part of the IRS.

We recommended IRS management
formalize guidelines for reviewing allegations of potential noncompliance,
establish realistic time standards for classifying information items and forwarding
them to an examination group, and initiate any future expedited review process
earlier in the election year. Further, we recommended IRS management issue a
press release in future election years outlining an expedited process to review
allegations of potential political intervention. IRS management agreed with
our recommendations and proposed corrective action.

· Modernization
systems being placed into production without a disaster recovery capability;

· Insufficient
disaster recovery capacity;

· Roles
and responsibilities not assigned and employees not trained; and

·Annual tests not conducted or ineffective.

Also, 27 of 44 corrective actions
for prior recommendations were not completed and insufficient management
oversight hampered the identification and resolution of program weaknesses. However,
management’s efforts to correct these problems have also been limited, in part,
by shrinking budgets. IRS management agreed with the report recommendations
and will declare the Disaster Recovery Program a material weakness.

IRS
employees have become more cognizant of security risks inherent in their daily
activities. However, a hacker or disgruntled employee may still be able to
obtain usernames and passwords to gain unauthorized access to IRS systems. We
placed telephone calls to 100 managers and employees posing as Information
Technology helpdesk personnel trying to correct a network problem. Under this
scenario, we convinced 35 managers and employees to provide their user account
names and passwords. While our results represent a 50 percent improvement over
a similar test conducted in August 2001, additional security awareness and
emphasis are needed to reinforce IRS employees’ security responsibilities. IRS
management agreed with our recommendations and proposed corrective actions.

Helping people
understand their tax obligations and making it easier for them to participate
in the tax system is the first step toward compliance. Taxpayers have several
options when they need IRS assistance, including face-to-face assistance at the
Taxpayer Assistance Centers (TAC), toll-free telephone numbers, and Internet
access through the IRS Web site (IRS.gov). The quality of each of these
services influences a taxpayer’s ability and desire to comply voluntarily with
tax laws.

Customer Service at TACs

The IRS is
improving customer service for taxpayers that visit the TACs to ask tax law
questions, but more improvement is needed for the IRS to provide top-quality
customer service. Although the accuracy of responses to tax law questions
increased by 24 percent, based on the audit work we completed from January 2002
through April 2004, the IRS did not meet its
80 percent accuracy goals for FYs 2003 and 2004, and it showed nominal
improvement in decreasing the number of incorrect responses. We believe the
IRS will not achieve its accuracy goal if employees continue to answer tax law
questions without using the tools provided by IRS management, and if the IRS
does not implement an effective quality review program. Because we have issued similar recommendations in
previous reports, we did not make recommendations in this report.

As for customer service provided via the Internet, the
IRS redesigned its Web site in 2002. The IRS decentralized responsibility for
current and future Web content to its various operating divisions and
functions. In addition, the IRS developed and issued guidelines in this area
on September 30, 2002, and implemented software to allow authorized users to
directly manage Internet content.

A large portion of the content on the
IRS Web site is relevant to approximately 121 million individual taxpayers
whose income is derived from wages and investments yielding interest,
dividends, or capital gains. The IRS Wage and Investment (W&I) Division
serves these individual taxpayers and is responsible for ensuring all
information pertaining to these taxpayers is accurate and current. The W&I
Division proactively developed specific procedures for employees to follow in
publishing content on IRS.gov. However, improvements are needed to ensure this
content is current and accurate. Sufficient management controls are not in
place to ensure only authorized individuals have access to IRS.gov content and
all content is tracked and reviewed prior to posting. In addition, key quality
assurance procedures are not always followed to ensure the IRS responds to
taxpayers who notify them of Web site errors, and employees follow procedures
for reviewing content changes and documenting annual certifications. We
recommended the IRS develop a process to ensure only authorized personnel have
access to IRS.gov content and all procedures are followed. IRS management
agreed with these recommendations.

Also in the area of customer service
via the Internet, the IRS has made significant progress in attracting taxpayers
to electronically file their tax returns (e-file).[8]
In addition the number of taxpayers participating in e-file has increasedfrom approximately 19 million in 1997 to 60.5 million in 2004.[9]
However, opportunities exist to improve tax software packages used to prepare
and process

e-filed
tax returns.

The IRS uses electronic file
specifications to program its computers that prepare and process e‑filed
tax returns. The IRS appropriately updated these specifications with TY 2003
tax law provisions. However, inaccurate programming specifications used to
program and process TYs 2001 and 2002 tax returns caused systemic errors in
some software used to

e-file certain tax returns.
The IRS tests all tax return preparation software used to e‑file
individual tax returns, but the tests are not created to check for
misapplication of the tax law. Four out of the five TY 2003 tax return
preparation software packages tested incorrectly prepared tax returns based on
facts we presented in the tests. In addition, the tax software packages’ own
internal validity checks did not identify the errors.

We recommended the IRS develop
procedures to ensure electronic file specifications are reviewed for accuracy
and consistency, and conduct additional testing on any selected tax return
preparation software before being used by its employees and volunteers to
prepare tax returns. The IRS agreed with our recommendation on file
specifications. However, the IRS believes it would not be feasible to perform
additional software testing without impeding its availability to IRS employees
and volunteers and delaying tax return processing. In addition, the IRS cannot
contractually require software developers to place their products under the
IRS’ process for more stringent testing.

The IRS has historically experienced
problems by making erroneous payments involving the Earned Income Tax Credit
(EITC). EITC is a refundable credit designed to help move low-income taxpayers
above the poverty level. During 2003, over 21 million taxpayers received the
EITC, totaling almost $37 billion. The IRS estimated that 27 to 32 percent of
the EITC claimed on TY 1999 returns should not have been paid.

The IRS has initiated several
programs to attempt to improve compliance with the EITC. We reviewed one
initiative, the EITC Recertification Program, to
determine if actions taken in response to a prior TIGTA report were
effective. The IRS did take some corrective actions, such as solving a
programming problem we identified. This corrective action allowed over 21,000
taxpayers to correctly receive more than $4.7 million in EITC. However, many
of the actions taken were ineffective, incomplete, or inaccurate. We still
identified taxpayers not receiving the EITC, taxpayers not timely receiving
refunds, taxpayers subjected to unnecessary examinations, unclear or confusing
communications, and loss of Federal Government funds. For instance:

·Approximately 51,000 taxpayers
received more than $110 million of EITC without demonstrating entitlement;

·Over 10,000 taxpayers were improperly denied almost $21 million;

·Over 3,200 taxpayer accounts had refunds totaling approximately
$4 million incorrectly suspended for an average of 1 year; and

·The IRS sent taxpayers approximately 850,000 letters or
electronic messages that did not clearly or accurately communicate the EITC
recertification requirements.

IRS management generally agreed with
our recommendations to help improve the application and administration of the
EITC Recertification Program.

Processing Returns and Implementing Tax Law Changes
During the Tax Filing Season

Overall,
the IRS had a successful 2004 Filing Season. Through May 2004, the IRS had
processed over 117 million returns (including over 60 million processed electronically
– an increase of nearly
16 percent over last year). Most of these returns were processed accurately
and timely. In addition, the IRS reported that the number of free file and on-line
filings from home computers increased by

25
percent (3.5 million) and 22 percent (14.4 million), respectively, compared to
last year. The IRS correctly implemented key tax law changes that affected TY
2003 returns, and provided taxpayers serving in a combat zone the benefits
and special treatment to which they are entitled. Such benefits include extensions
of time to file tax returns or pay taxes and the suspension of any audit or
collection activities. The IRS also accurately
processed returns claiming the Health Coverage Tax Credit (HCTC), which was
established to help certain displaced workers and retirees pay for their health
insurance.

However,
not all tax law changes have been effectively implemented, and these continuing
issues could result in a loss of taxpayer entitlements or erroneous tax
reductions. We estimated almost 5,000 taxpayers continued to receive more than
$3 million in erroneous deductions for student loan interest while over 286,000
taxpayers had potential unclaimed Additional Child Tax Credits (ACTC) amounting
to approximately $152 million.

Almost
17,000 single taxpayers were allowed questionable “dual benefits” of
approximately $30 million for the tuition and fees deduction and $11 million
for the Education Credit.We also
identified some processing improvements
needed to aid the administration of Combat Zone and HCTC provisions.

We recommended the IRS ensure computer programs
accurately identify and correct errors on returns, ensure a computer change is
made to continue to identify taxpayers that appear eligible for, but do not
claim, the ACTC, and strengthen controls to identify and prevent erroneous tax
reductions during initial tax return processing. We further recommended the
IRS add a specific line for the HCTC to the Individual Income Tax Return (Form
1040), transcribe information from the Health Coverage Tax Credit (Form 8885)
attachment to Form 1040, and implement pre-refund systemic validity and
compliance checks. Lastly, we recommended the IRS ensure Combat Zone indicators
on its Master File are accurate, updated timely, and verified annually.

In a separate audit report, related
to processing returns, we addressed the inconsistent treatment of taxpayers who
become subject to the Failure to Pay (FTP) tax penalty. IRS computers are
programmed to charge interest on accrued FTP tax penalties only after they are
assessed. This shortcoming applies to the automated administration of the FTP
tax penalty for taxpayer accounts (the majority of FTP tax penalty cases). By
not periodically assessing penalties, the IRS is forgoing interest charges of more
than

$4.5 billion for a 5-year period, of
which we estimated more than $1.8 billion could be collected.

In contrast, for accounts that are manually
administered, some of which belong to taxpayers in disaster areas or military combat
zones, interest is assessed on the FTP tax penalty. The FTP tax penalties on
these accounts are computed manually because IRS computers are not programmed
to handle their complex or varying tax issues. Because FTP tax penalties are
periodically assessed on these accounts, interest is charged on the penalties
from the time of their assessment. For CYs 2001 and 2002, we estimated over
126,000 of these accounts contained more than $8.7 million in interest charges
through December 31, 2003, even though taxpayers with accounts handled by computer never incur these interest charges.

To ensure all taxpayers are treated
equitably and all monies owed the Federal Government are correctly assessed, we
recommended the IRS make programming changes to assess accrued FTP tax penalties
on a periodic basis. We also recommended the IRS work with the Department of
the Treasury to request clarifying legislation regarding the need for separate
notices to be issued to taxpayers in these cases. IRS management generally agreed
with our recommendations and is taking steps to address this issue.

The Department of the Treasury
implemented a human resources management system called HR Connect, based on
promising capabilities and the belief that it offered a cost-effective solution
for the Department and its bureaus’ redundant, expensive, and inefficient human
resources systems. However, some of the original program features and
cost/benefits were changed or eliminated. The business case analyses submitted
to the Office of Management and Budget (OMB) were not consistent and did not
include complete information on systems that were to be replaced. The
Department and the IRS incurred unexpected costs for maintaining software and
systems that were to be replaced, incurred additional costs for modifying the
HR Connect system, and scaled back expectations for system capabilities.

The HR Connect Program Office did
not provide adequate oversight of the contractor and major portions of the
system implementation. The costs to implement and operate similar software at
other Federal Government agencies were significantly lower. The Department of
the Treasury paid $173 million to implement HR Connect, while similar human
resource systems at the Coast Guard and the United States Department of
Agriculture cost
$24 million and $15 million, respectively. The project experienced
significant delays, and the Program Office extended the system life cycle from 10 to 15 years to show a higher return on investment. The underlying analysis to support
the

$899 million in projected savings
was unsubstantiated, especially savings related to staff reassignments or
reductions.

We
recommended the Department of the Treasury ensure future business case analyses
submitted to the OMB explain revisions and impact on the investment, and reevaluate
the duties delegated to the contractor to ensure proper oversight. We also
recommended the Department of the Treasury identify and monitor custom
modifications made to the software, coordinate with other agencies to achieve a
more cost-effective model for operating and maintaining the system, properly
account for system costs, and assess the likelihood of projected benefits so
future decisions are based on correct information. The Department of the
Treasury’s management agreed with our recommendations and proposed corrective
actions to address these problems.

In 1999, the IRS and the National
Treasury Employees Union agreed to establish the Human Resources Investment
Fund (HRIF) to help employees obtain appropriate training to move into IRS
critical occupations and improve the skills of the employees currently in these
positions. The IRS was required to set aside at least 2 percent of its annual
training budget for the HRIF. For

FYs 2002 and 2003, the IRS approved
more than $6.1 million and 11,000 courses for 5,100 employees. However, only
46 percent of the $6.1 million reported as “disbursed” was actually spent.
Additionally, the IRS did not maintain adequate records to track participants, which
prevented it from assessing this program. As a result, the IRS did not know
whether employees passed or failed the courses or whether the IRS should seek
reimbursement from employees for failed or uncompleted courses.

The program’s efficiency is also
questionable since its administrative costs exceeded the actual tuition paid.
For

FYs 2002 and 2003, the IRS paid
approximately $4.4 million to administer the program, but paid only $2.8
million in employee tuition assistance. The IRS could use other existing processes
to allocate tuition assistance more effectively and better accomplish the intended
objectives of the HRIF. The IRS could use its new automated training system of
record, the Enterprise Learning Management System, to track the success of
these initiatives.

We recommended the IRS request
reimbursement from employees who failed or did not complete approved courses,
as appropriate. We also recommended the IRS consider eliminating the HRIF and
redesign its approach to providing tuition assistance, which could save more
than

$2
million in annual administrative costs. While they disagreed with the
estimated annual savings, IRS management agreed
with the recommendations and proposed corrective actions to address the
problems identified in the report.

protect the integrity of
tax administration

IGTA’s Office of Investigations (OI)
helps protect the ability of the IRS to collect revenue for the Federal
Government. To do this, we investigate allegations of criminal violations and serious[mja1] administrative misconduct by
IRS employees, protect the IRS against external attempts to corrupt tax
administration, and ensure IRS employee and infrastructure security.

While most Offices of Inspector
General focus primarily on fraud, waste and abuse, our mission is more extensive.
TIGTA has the statutory responsibility to protect the integrity of tax
administration. To achieve this broad mandate, we perform a variety of
functions, including:

·A strong vigorous inspection service will be established and will be made completely independent of the rest of the Bureau. Through a comprehensive system of audits and inspections, this service will keep operations and management of the Bureau under continual scrutiny and appraisal…”
U.S. President Harry S. Truman
January 2, 1952
The White House, Washington, DC
Announcing the reorganization of the Bureau of Internal Revenue, creating an Inspection Service within the Bureau

TIGTA’s Office of Investigations (OI) bases its performance
measures on three functional areas of accomplishment: employee integrity,
infrastructure protection, and external crime. Each of these three areas is
subdivided into three categories, all designed to support the agency’s law
enforcement goals.

Our strategy for ensuring employee
integrity, employee and infrastructure protection, and protecting the IRS
against external attempts to corrupt tax administration is to focus TIGTA
special agents on high impact investigations that protect the ability of the
IRS to collect the nation’s tax revenue.

Employee Integrity

The IRS’ ability to deliver taxpayer
service, enforce tax laws effectively, and collect the proper amount of taxes
owed can be undermined by employee misconduct. We investigate employee
misconduct allegations, including extortion, theft, taxpayer abuses, false
statements, and financial fraud, as well as contractor misconduct and wrongdoing.
During the reporting period, we completed 935employeeintegrity investigations.

Protecting Taxpayer Identification Information
To protect the sanctity of taxpayer information, TIGTA conducts proactive initiatives to identify IRS employees who improperly access confidential information and records of taxpayers. Through the identification and prosecution of IRS employees responsible for wrongfully accessing confidential taxpayer information, TIGTA helps minimize opportunities for identity theft by IRS personnel.
As an integral part of our employee integrity
program, we conduct proactive integrity initiatives designed to uncover fraud
in IRS operations and to identify internal control weaknesses that may have
permitted the fraud to go undetected or unreported. A primary resource used in
this effort is our Strategic Enforcement Division (SED). Through SED’s data
mining capacity, we proactively detect IRS employees who may have improperly
accessed and/or disclosed confidential taxpayer information. During this
reporting period, our Unauthorized Access (UNAX) Program led to the initiation
of 240 investigations involving apparent unauthorized access of IRS computer
systems.

The following cases are examples of
IRS employee integrity investigations conducted during this reporting period.

IRS Agent Arrested for Scheme to Defraud the United States

In February 2005, an IRS employee was
arrested in New Jersey for knowingly defrauding the United States. The
employee allegedly managed and controlled the financial affairs of a real
estate development and home construction company. Allegedly, the IRS employee
diverted proceeds from the sale of real estate to various bank accounts and
individuals. As a result, the company and its owner defrauded the United States of taxes owed on approximately $600,000.

In January 2005, an IRS Tax Examining
Assistant pled guilty in Wisconsin to unauthorized disclosure of tax return and
return information. In a plea agreement, the IRS employee admitted to
willfully disclosing tax information of individuals, including their names,
addresses, and social security numbers. The employee disclosed the information
to her daughter, who used this information
for personal business purposes.

In February 2005, an IRS employee
was charged in Michigan with making false statements and witness tampering. Allegedly,
the IRS employee improperly accessed 12 individuals’ tax accounts and instructed
one individual to lie to

TIGTA’s Technical and Firearms Support Division
and Forensic Science Laboratory
TIGTA’s investigative efforts are greatly enhanced by its Technical and Firearms Support Division and Forensic Science Laboratory. Each of these programs provides technical expertise throughout our investigations. During the reporting period, the Technical and Firearms Support Division provided electronic or surveillance support in 101 investigative requests, while the Forensic Science Laboratory conducted 60 forensic examinations.

investigators
if ever questioned about the

matter.
The employee was also charged with falsely stating to investigators that

she
did not conduct the accesses and/or contact the individual.

Former IRS Contract Employee Sentenced for Stealing More Than $231,000 from
an IRS Lockbox Facility

In February 2005, a former IRS contract
employee was sentenced in Texas for embezzlement, and aiding and abetting. The
former contract employee stole and converted more than $231,000 in tax
remittance checks from an IRS lockbox. The individual deposited the remittance
checks into bank accounts in assumed names. The individual was sentenced to 71
months in prison, 3 years’ supervised release, and was ordered to pay more than
$194,000 in restitution. Upon release from prison, he will be turned over to
U.S. Immigration for deportation proceedings.

Two Individuals Arrested for More Than $1 Million in False Claims

In January 2005, two individuals were
arrested in Maryland for false claims, conspiring to defraud the United States with respect to claims, obstruction of a federal audit, and aiding and
abetting. The individuals are alleged to have posed as the president and vice president
of a corporation contracted to plan, manage, and coordinate the IRS’ nationwide
tax forums. Allegedly, the individuals created fictitious invoices and
documents to support underreported income and overreported expenses to the IRS,
resulting in the IRS’ payment of more than $1 million in management fees. The
individuals are also alleged to have failed to provide records subpoenaed by
TIGTA’s Office of Audit.

Employee and Infrastructure Security

The
IRS collected $2 trillion in revenue for the Federal Government in Calendar
Year 2004. This revenue is used to fund Federal programs related to housing,
health care, clean air, national defense, social security, highways, and more.
Threats and assaults against IRS employees, facilities, and data
infrastructure [mja5]impede the IRS’ efforts to collect tax revenue.

Recognizing
the vital nature of the IRS’ responsibility, the Congress directed TIGTA
to protect the IRS from external threats. To meet this challenge, we operate a
nationwide Criminal Intelligence Program (CIP) designed to identify and neutralize threats, assaults, and violent acts
targeted against IRS facilities, employees, and operations. As part of the
Program, TIGTA participates in FBI Joint Terrorism Task Forces throughout the
country and assists the IRS in developing and enhancing its employee safety and
infrastructure security programs. During this reporting period, we completed

The
following cases are examples of IRS employee and infrastructure security
investigations conducted during this reporting period.

Individual Convicted for Soliciting to Murder an IRS Employee

In
January 2005, an individual in Idaho was found guilty on three counts of
solicitation to commit a crime of violence. The individual solicited another
individual to murder an IRS Special Agent, an Assistant United States Attorney,
and a Federal Judge who were assigned to the individual’s Federal tax
violations.

Individual Arrested for Threatening to Mail a Bomb to an IRS Revenue
Officer

In
December 2004, an individual was arrested in Michigan for corruptly interfering
with the due administration of internal revenue laws. The individual allegedly
threatened to mail a bomb to an IRS Revenue Officer who was performing his
official duties.

Criminal Complaint Filed Against an Individual Charging Him with Threats
Against Public Officials and Others

In February 2005, a criminal complaint
was filed in Maine charging an individual with: knowingly and willfully making
a threat to kill the President of the United States; knowingly making threats
via electronic mail to injure members of a research institute; and knowingly
making threats via electronic mail to injure agents of the IRS. The individual
was also charged with knowingly depositing or causing to be deposited in the United States mail a written communication containing threats to injure a person, namely IRS
agents; and knowingly making threats via electronic mail to injure an employee
of a television station.

Individual Charged with Assaulting IRS Employees

In March 2005, an individual was
indicted in California for assaulting a Revenue Officer resulting in the
infliction of bodily injury. Allegedly, the individual used force to assault
and interfere with two IRS employees while they were engaged in the performance
of their official duties, resulting in the infliction of bodily injury to one IRS
employee.

External Attempts to Corrupt Tax Administration

TIGTA is dedicated to investigating
external attempts to corrupt or interfere with the administration of internal revenue
laws. Examples of these attempts include bribes offered by taxpayers to
compromise IRS employees, the use of fraudulent IRS documentation to commit
crimes, impersonation of IRS officials, and the corruption of IRS programs through
procurement fraud. External attempts to corrupt tax administration impede the IRS’
ability to collect revenue.

Bribery
investigations are an important priority for us. With the IRS planning to
increase revenue collection from delinquent taxpayers, more attempts by
taxpayers to bribe IRS employees involved in those collection activities may
occur. Since October 1, 2004, we have conducted

21 investigations into bribery allegations involving taxpayers. In addition, we
conducted 60 investigations of attempts to manipulate or corrupt
IRS systems and operations, and 233 investigations into fraud and other related
activities.

Procurement Fraud Program
The Procurement Fraud Section (PFS) within TIGTA’s Special Inquiries and Intelligence Division (SIID) is dedicated to the identification and investigation of procurement fraud within the IRS. The PFS achieves its goals through proactive and reactive investigations, fraud awareness presentations, proactive investigative initiatives, data analyses, and liaisons. These activities, while labor intensive, relate directly to TIGTA’s core mission of preventing external attempts to corrupt the IRS’s ability to effectively administer the tax laws.
The IRS has also placed special emphasis on
technology modernization and outsourcing. To accomplish its modernization
program, the IRS will continue to rely heavily on contractor support. With IRS procurement expenditures and
commitments in the billions of dollars over the life of current contracts,
the opportunity for contract fraud is always present. We have established a
Procurement Fraud Section (PFS) to identify procurement fraud, prosecute the
responsible individuals, and recover monies owed to the Federal Government. During
this reporting period, results of the PFS have been impressive, with more than
$1.5 million in recoveries and nine fraud awareness presentations made to179
individuals.

The following cases are examples
of investigations of external attempts to corrupt tax administration conducted
during this reporting period.

Individuals Found Liable for More Than $1.5 Million for False Claims
Submitted to the IRS

In Fall 2004, a husband and wife
were held jointly liable in Maryland for violating the Civil False Claims Act.
According to the Court, the husband owned and controlled

two companies – one that acted as a
subcontractor, the other as a middleman – on an IRS contract to repair laptop
computers. The husband vastly inflated his company’s costs, causing the prime contractor
to submit overpriced invoices for services to the IRS. The wife sat on the
Board of Directors of each company. The Court found treble damages in excess
of $1.2 million and assessed an additional $220,000
in civil penalties, for a totalaward
of more than $1.5 million to

the
government.

Tax Accountant Sentenced for Wire Fraud Involving a Tax Liability

In January 2005, a tax accountant
was sentenced in Pennsylvania for wire fraud. The tax accountant negotiated an
IRS installment agreement on behalf of one of his clients. The tax accountant
instructed his client to wire him payments so he could forward them to the
IRS. He did not forward the payments to the IRS, but converted more than
$148,000 for his own use. The tax accountant was sentenced to 37 months in
prison, 3 years’ supervised release, and ordered to pay $95,400

in restitution.

Individual Pleads Guilty to Impersonating an IRS Employee

In February 2005, an individual pled
guilty in New Jersey to impersonating an IRS employee. An IRS Revenue Officer
issued a notice of levy of funds to a business where the individual was a
subcontractor. The levy was for a tax liability of more than $46,000 owed by
the individual. The individual called the business owner, purporting to be the
IRS Revenue Officer, and falsely advised the business owner

that the levy had been released. To confirm the phone call, the
individual faxed a false letter (again, purportedly from the IRS Revenue
Officer) to the business owner.

“There is no crime more serious than bribery. Other offenses violate one law while corruption strikes at the foundation of all law.”
U.S. President Theodore Roosevelt
December 7, 1903
The White House, Washington, DC

Individual Sentenced for Bribing an IRS Employee

In January 2005, an individual was
sentenced in New York for bribery. The individual paid an IRS employee $10,000
in cash to assess no additional taxes for her CY 2000 and 2002 tax returns.
The individual also made a $5,000 payment to the IRS employee to reduce her 2001
tax liability from $37,000 to approximately $5,000.

Individual Sentenced for Theft of IRS Grant Funds

In
January 2005, an individual was sentenced in Ohio for theft of government
property. The individual, representing himself as the finance director of a
nonprofit organization, falsely obtained more than $16,800 in IRS grant funds
under the Tax Counseling for the Elderly Program. The individual was sentenced

to
4 months’ home confinement, 3 years’ probation, 100 hours of community service,
and ordered to pay $18,675

in
restitution.

Individual Pleads Guilty to Interfering with the Administration of Internal
Revenue Laws

In January 2005, an individual pled
guilty in North Carolina to interfering with the administration of internal
revenue laws, and aiding and abetting. The individual

fraudulently represented himself as an
attorney and assisted others in filing fraudulent tax returns. The individual also
filed fictitious arrest warrants against the IRS agents investigating the case,
and advised three different witnesses not to appear before a Federal grand
jury.

IGTA
has once again received an award for its Telework program. We received the
Leadership in Specialized Programs for Teleworkers Award for our Hoteling
initiative from the Potomac Forum. The award presentation took place at
Potomac Forum’s Telework in the Federal Government Conference on October 13, 2004. Joseph Hungate, TIGTA’s Assistant Inspector General for Information
Technology, a featured speaker at the conference, discussed recommendations for
success, best practices, and lessons learned.

TIGTA Liaison
Receives Recognition

L

uis D. Garcia, TIGTA’s Congressional and Media
Liaison, received an appreciation plaque on March 14, 2005, from the Korean
Ambassador to the United States, the Honorable Seok-Hyun Hong[mja6]. The plaque, signed by the Commissioner of the Korean National Tax
Service, was given to Mr. Garcia for his work in helping to foster
international cooperation and promote best practices in tax administration.

Audit Statistical Reports

Audit
Reports With Questioned Costs

One audit report with questioned
costs was issued during this semiannual reporting period.1 The phrase “questioned cost” means a
cost that is questioned because of: (1) an alleged violation of a provision of
a law, regulation, contract, or other requirement governing the expenditure of
funds; (2) a finding, at the time of the audit, that such cost is not supported
by adequate documentation (an unsupported cost); or (3) a finding that
expenditure of funds for the intended purpose is unnecessary or unreasonable.
The phrase “disallowed cost” means a questioned cost which management, in a
management decision, has sustained or agreed should not be charged to the
government.

Reports
With Questioned Costs

Report Category

Number

Questioned Costs

(In Thousands)

Unsupported Costs

(In Thousands)

1. Reports with no management
decision at the

beginning of the reporting
period

5

$707

$684

2. Reports issued during the reporting

period

1

$245

$0

3. Subtotals (Item 1 plus Item
2)

6

$9532

$684

4. Reports for which a
management decision was

made during the reporting period3

a. Value of disallowed
costs

b. Value of costs not
disallowed

2

1

$14

$3

$0

$0

5. Reports with no management
decision

at the end of the reporting period

(Item 3 minus Item 4)

4

$936

$684

6. Reports with no management
decision

within 6 months of issuance

3

$691

$684

1 See Appendix II for identification of audit reports
involved.

2Difference due to rounding.

3 IRS management disallowed only part of the questioned costs
for one report (Reference No. 2004-10-117).

Audit Reports
With Recommendations That

Funds Be Put
To Better Use

Four reports with recommendations that funds be put to
better use were issued during this semiannual reporting period.1 The phrase “recommendation that funds
be put to better use” means a recommendation that funds could be used more
efficiently if management took actions to implement and complete the
recommendation, including: (1) reductions in outlays;
(2) deobligations of funds from programs or operations; (3) costs not incurred
by implementing recommended improvements related to operations; (4) avoidance
of unnecessary expenditures noted in

pre-award reviews of contract agreements; (5) preventing erroneous
payment of the following refundable credits: Earned Income Tax Credit and
Child Tax Credit; or (6) any other savings which are specifically identified.
The phrase “management decision” means the evaluation by management of the
findings and recommendations included in an audit report and the issuance of a
final decision concerning its response to such findings and recommendations,
including actions concluded to be necessary.

Reports With Recommendations
That Funds Be Put to Better Use

Report Category

Number

Amount

(in thousands)

1. Reports with no
management decision at the beginning of the reporting period

4

$345,256

2. Reports issued during the reporting period

4

$28,124

3. Subtotals (Item 1 plus Item 2)

8

$373,3792

4. Reports for which a management decision was made
during the reporting period

a. Value of recommendations to which
management agreed

i. Based on proposed management action

6

$68,910

ii. Based
on proposed legislative action

0

$0

b. Value of recommendations to which
management did not agree 3

1

$9,770

5. Reports with no
management decision at end of the reporting period (Item 3 minus Item 4)

2

$294,700

6. Reports with no management decision within 6 months
of issuance

2

$294700

1 See Appendix II for identification of
audit reports involved.

2Difference due to rounding.

3 In one report (Reference No.
2004-30-171) IRS management agreed to a portion of the value of the recommendations.
TIGTA concurs with the

revised figure.

Reports With
Additional Quantifiable Impact On

Tax
Administration

In addition to questioned costs and funds put to better use,
the Office of Audit has identified measures that demonstrate the value of audit
recommendations to tax administration and business operations. These issues
are of interest to IRS and Treasury executives, the Congress, and the taxpaying
public, and are expressed in quantifiable terms to provide further insight into
the value and potential impact of the Office of Audit’s products and services.
Including this information also promotes adherence to the intent and spirit of
the Government Performance and Results Act (GPRA).

Definitions of these
additional measures are:

Taxpayer Rights and
Entitlements at Risk:The
protection of due process rights granted to taxpayers by law, regulation, or
IRS policies and procedures. These rights most commonly arise when filing tax
returns, paying delinquent taxes, and examining the accuracy of tax
liabilities. The acceptance of claims for and issuance of refunds
(entitlements) are also included in this category, such as when taxpayers
legitimately assert that they overpaid their taxes.

Reduction of Burden on Taxpayers: Decreases by individuals
or businesses in the need for, frequency of, or time spent on contacts, record
keeping, preparation, or costs to comply with tax laws, regulations, and IRS
policies and procedures.

Increased Revenue: Assessment or collection of
additional taxes.

Revenue Protection: Proper denial of claims for
refunds, including recommendations that prevent erroneous refunds or efforts to
defraud the tax system.

Inefficient Use of Resources:Value of
efficiencies gained from recommendations to reduce cost while maintaining or
improving the effectiveness of specific programs; resources saved would be
available for other IRS programs. Also, the value of internal control
weaknesses that resulted in an unrecoverable expenditure of funds with no
tangible or useful benefit in return.

Protection of Resources: Safeguarding human and
capital assets, used by or in the custody of the organization, from inadvertent
or malicious injury, theft, destruction, loss, misuse, overpayment, or
degradation.

Reliability of
Management Information: Ensuring
the accuracy, validity, relevance, and integrity of data, including the sources
of data and the applications and processing thereof, used by the organization
to plan, monitor, and report on its financial and operational activities. This
measure will often be expressed as an absolute value (i.e., without regard to
whether a number is positive or negative) of overstatements or understatements
of amounts recorded on the organization’s documents or systems.

The number of taxpayer
accounts and dollar values shown in the following chart were derived from
analyses of historical data, and are thus considered potential barometers of
the impact of audit recommendations. Actual results will vary depending on the
timing and extent of management’s implementation of the corresponding
corrective actions, and the number of accounts or subsequent business
activities impacted from the dates of implementation. Also, a report may have issues that impact more than one
outcome measure category.

Reports with Additional Quantifiable
Impact on Tax Administration

Outcome Measure Category

Number of Reports1

Number of Taxpayer Accounts

Number

of Hours

Dollar Value

(in thousands)

Other2

Taxpayer Rights and

Entitlements at Risk

5

323,411

$1,112,4263

Reduction of Burden

On Taxpayers

4

90,042

50,000

*

Increased Revenue

5

9,904,015

$12,023,9904

Revenue Protection

1

21,929

$3,310

Taxpayer Privacy and

Security

1

14

Inefficient Use of

Resources

3

$54,3495

Protection of Resources

0

Reliability of Management Information

3

146

$681,4087

1 See Appendix II for
identification of audit reports involved.

2 Some reports contained “Other” quantifiable impacts
besides the number of taxpayer accounts, number of hours, and dollar value.
These

outcome
measures are described in the footnote marked * below.

3 In one report (Reference No. 2005-30-022), IRS
management did not agree with the $855 million in reported benefits to
taxpayers

because
the IRS does not believe that they are obligated to file returns on the
taxpayers’ behalf. In a second report (Reference No. 2005-

40-039),
IRS management did not agree with the methodology used to calculate the
projected $20.8 million of Earned Income Tax Credit

improperly
denied.

4 In three reports (Reference Nos. 2005-30-029,
2005-30-048, and 2005-30-053), IRS management did not concur with TIGTA’s

estimates
of increased revenue totaling $538.4 billion

5
In three reports (Reference Nos.
2005-20-004, 2005-10-037, and 2005-10-070), IRS management did not agree with
the $54.3 million in

inefficient
use of resources.

6
In one report (Reference No.
2005-40-018), IRS management believes that the Customer Accuracy measure should
not include the 14

potential
disclosure errors.

7
In one report (Reference No.
2005-10-037), IRS management asserted that they established an adequate basis
for the $680 million in

1This chart includes statistics on final
criminal dispositions during the reporting period. This data may pertain to
investigations referred

criminally in prior reporting
periods and do not necessarily relate to the investigations referred criminally
in the Status of Closed Criminal

Investigations table above.

Administrative
Disposition on Closed TIGTA Investigations1

Removed, Terminated or Other

204

Suspended/Reduction in Grade

65

Oral or Written Reprimand/Admonishment

71

Closed – No Action Taken

129

Clearance Letter Issued

112

Employee Resigned Prior to Adjudication

85

TOTAL ADMINISTRATIVE DISPOSITIONS

666

1 This chart includes statistics on final
administrative dispositions during the reporting period. This data may pertain
to investigations

referred
administratively in prior reporting periods and does not necessarily relate to
the investigations closed in the Investigations

Opened and Closed
statistics on page 35.

Rooftop view of west façade, Treasury Building,

White House in forefront, 1907

Appendix I – Statistical Reports – Other

Audit
Reports With Significant Unimplemented

Corrective
Actions

The Inspector General Act
of 1978 requires identification of significant recommendations described in
previous semiannual reports in which corrective actions have not been
completed. The following list is based on information from the IRS Office of
Management Control’s automated tracking system maintained by Treasury management
officials.

Reference Number

Issued

Projected

Completion

Date

Report Title and Recommendation Summary

(F = Finding Number, R = Recommendation Number,

P = Plan Number)

093602

April 1999

10/01/05

The Internal
Revenue Service Needs To Improve Treatment of Taxpayers During Office Audits

F-1, R-4, P-2. Ensure that all MACS data discs forwarded from the
MACS Development Center to district offices are properly accounted for and
secured.

2000-30-059

March 2000

05/15/05

05/15/05

The Internal Revenue
Service Can Improve the Estate Tax Collection Process

F-2, R-2, P-1. Develop procedures to periodically reconcile tax
liens on the ALS with information shown on the taxpayer accounts.

F-2, R-3, P-1. Clarify procedures to employees that all estate
tax liens should be recorded on the ALS.

2000-30-130

September 2000

10/15/05

Opportunities Exist
to Enhance the International Field Assistance Specialization Program

F-2, R-1, P-1. Improve the management information system by
linking the International Field Assistance Specialization Program indicator
to specific issues listed in the International Case Management System.

Program
Improvements Are Needed to Encourage Taxpayer Compliance in Reporting Foreign
Sourced Income

F-1, R-1, P-1. Ensure the prior recommendations are implemented.
Establishing a formal program with goals, objectives, processes and measures
could help ensure that sufficient management attention is devoted to
improving the use of the Routine Exchange of Information Program for
compliance.

F-2, R-1, P-1. Identify the highest risk foreign sourced income
documents and use them to coordinate with tax treaty partners to positively
identify the U.S. taxpayers involved.

The Internal
Revenue Service Does Not Penalize Employers that File Wage and Tax Statements
with Inaccurate Social Security Numbers

F-1, R-1, P-1. Ensure that the IRS initiate, as proposed in their
response to our memorandum dated February 1, 2002, a regularly scheduled
program for proposing penalties for Forms W-2 with inaccurate name/SSN
combinations.

2002-10-187

September 2002

05/15/05

The New Suspension
of Interest Provision Is Not Always Calculated Correctly

F-2, R-2, P-1. Identify disaster relief taxpayers and refund the
amounts that were automatically collected on the under assessed interest.

2003-40-023

November 2002

10/01/05

Trends in Customer
Service in the Taxpayer Assistance Centers Show Procedural and Training
Causes for Inaccurate Answers to Tax Law Questions

F-5, R-2, P-1. Explore other options such as the planned remote
monitoring by TAC managers, for conducting quality reviews of TAC employees
on a regular basis.

2003-20-035

December 2002

06/15/05

06/01/05

Additional
Cost Savings and Increased Productivity in the Print Operation and Computer
Support Function Can Be Achieved at the Campus Locations

F-1, R-1,
P-1. Increased
coordination should be required with users to discontinue printing reports
that are currently available in both printed and electronic format and
convert additional reports to the EONS.

F-2, R-5, P-2. Ensure that personnel in the Real Estate and
Facilities area of the Agency-Wide Shared Services are adequately trained
regarding the requirements for issuing a contractor employee an IRS
identification badge.

F-3, R-1, P-1. Ensure that a consolidated or integrated system is
implemented to effectively manage all background investigations and
identification badges, incorporating the needs of all stakeholders and
eliminating the use of stand-alone systems such as the Security Entry
Tracking System and the Procurement Background Investigation Program.

F-3, R-2, P-1. Ensure that until a single system is implemented,
all COTRs are required to use the Procurement Background Investigation
Program regardless of their organizational placement, and complete periodic
reconciliations between the contractor employee background investigation
information and the identification badge information at each IRS facility are
conducted to detect the issuance of contractor employee identification badges
without completion of required background investigations.

F-1, R-3, P-1. Ensure that the ability to record and report trust
fund administrative expenses, as currently envisioned in the IFS development
plans is properly implemented.

2003-10-094

March 2003

04/15/05

Improvements Are
Needed in the Monitoring of Criminal Investigation Controls Placed on
Taxpayers’ Accounts When Refund Fraud is Suspected

F-1, R-2, P-1. Ensure that regular reviews of the Questionable
Refund Program are conducted to assess compliance with procedures and that
feedback is provided regarding program effectiveness. Also, analyses of the
FDCs’ control listing data should be analyzed to ensure reviews are done and
accounts are resolved.

F-1, R-2, P-1. Consider changing the regulations to eliminate the
requirement for taxpayers to file an application with the IRS in order to
receive extensions of time to file a tax return.

F-1, R-3, P-1. Revise the tax package instructions.

2003-30-176

August 2003

11/15/05

Interest Paid to
Large Corporations Could Significantly Increase Under a Proposed New Revenue
Procedure

F-1, R-2, P-1. Gather pertinent information concerning the effect
the proposed procedure will have on reducing the length of examinations and interest
costs by conducting a pilot program to demonstrate the actual benefits that
could be achieved.

2003-40-180

August 2003

07/15/06

More Information Is
Needed to Determine the Effect of the Automated Underreporter Program on
Improving Voluntary Compliance

F-2, R-1, P-1. Improve the current management information system
process to capture data sufficient to establish baselines and long-term
measures and goals.

2003-10-201

September 2003

07/01/05

Lead Development
Centers Do Not Significantly Contribute to Increases in Legal Source Cases

F-3, R-1, P-1. Ensure that the data in the LDC database are
consistent and issue instructions on how to use the LDC database.

2003-10-212

September 2003

P-1, P-2:

07/15/05

P-3, P-4:

10/15/05

Information on
Employee Training Is Not Adequate to Determine Training Cost or Effectiveness

F-3, R-2, P-1, P-2,
P-3, P-4. Ensure the IRS training
and financial systems can provide information needed for the IRS to assess
its own training efforts.

2003-20-219

September 2003

04/01/05

The Cost and
Schedule Estimation Process for the Business Systems Modernization Program
Has Been Improved, But Additional Actions Should Be Taken

F-1, R-4, P-1. Ensure that the SEI is requested to conduct an
independent review of the cost and schedule estimation system once the
initial validation is complete and policies and procedures are fully
implemented.

2004-20-001

October 2003

11/15/05

Risks Are Mounting
As the Integrated Financial System Project Team Strives to Meet An Aggressive
Implementation Date

The Selection of
Earned Income Tax Credit Returns for Examination can Be Improved to Further
Prevent Payment of Erroneous Claims

F-1, R-1, P-1. Complete an analysis of the historical Dependent
Database examination data to determine if there is a relationship between the
direct examination time, rules identified, and disposition of examinations.

Improvements Are
Needed in the Screening and Monitoring of E-File Providers to Protect Against
Filing Fraud

F-1, R-2, P-1. Enhance the screening procedures for E-File
Providers to include sending scanned fingerprints to the FBI electronically.

F-1, R-3, P-1. Enhance the screening procedures for E-File
Providers to include verifying that individuals who provide professional
certifications in lieu of a fingerprint card are in current standing with the
organization to which the professional certification relates.

Better Use of the
National Account Profile During Returns Processing Can eliminate Erroneous
Payments

F-2, R-1, P-1. Conduct studies on the accuracy of EITC claims on
tax returns for individuals that have been claimed for EITC purposes that are
20 or more years older than the primary taxpayer, or are listed as children
that are up to 19 years older than the primary taxpayer.

2004-30-106

June 2004

08/15/05

08/15/05

08/15/05

08/15/05

08/15/05

08/15/05

Changes
to the Regulations for Granting Extensions of Time to File Corporate Tax
Returns Are Needed to Alleviate Significant Problems With Administering the
Tax Laws

F-1,
R-1, P-1.
Revise the tax regulations applicable to corporations to eliminate the
requirement that corporations make tentative estimates of their tax
liabilities to obtain an extension of time to file.

F-1,
R-2, P-1.
Revise the tax regulations applicable to corporations to grant extensions of
time to file only to payment-compliant corporations.

The Certification
and Accreditation of Computer Systems Should Remain in the Computer Security
Material Weakness

F-1, R-1, P-2. Keep the certification and accreditation of
computer systems as part of the computer security material weakness until a
sufficient number of systems has been certified and accredited.

2004-20-135

August 2004

12/15/05

05/15/05

08/30/05

The Audit Trail
System for Detecting Improper Activities on Modernized Systems Is Not
Functioning

F-1, R-2, P-1. Ensure alternatives are developed for reviewing
audit trails for modernized application in the event the SAAS deficiencies
cannot be corrected.

F-2, R-1, P-1. Ensure the SAAS operating procedures are fully
developed and finalized so that business units can conduct effective and
efficient audit trail reviews of modernized applications.

F-2, R-2, P-1. Ensure periodic compliance reviews are conducted
once the SAAS is functional to ensure the CSIRC and business unit managers
carry out their roles and responsibilities to review audit trails.

2004-40-151

August 2004

08/15/05

The Effectiveness
of the Kiosk Program Cannot Be Determined

F-1, R-1, P-1, P-2. Develop guidelines and strategies to enable the
efficient and effective oversight of the Kiosk Program.

2004-20-131

September 2004

06/01/05

01/01/06

06/01/05

The Use of Audit
Trails to Monitor Key Networks and Systems Should Remain Part of the Computer
Security Material Weakness

F-2, R-2, P-1. Keep the audit trails area as part of the computer
security material weakness until critical applications are removed from Tier
2 unconsolidated UNIX servers or consolidated into a more secure environment.

F-2, R-4, P-1. Develop and implement a reasonable approach for
reviewing audit trails over major applications.

2004-30-133

September 2004

08/15/05

The Controls for
Examination Processes for Industry Cases With International Transfer Pricing
Issues Can Be Improved

Network Access,
System Access, and Software Configuration Should Remain Part of the Computer
Security Material Weakness

F-1, R-1, P-1. Keep the network access control area as part of the
computer security material weakness until the IRS can demonstrate a
repeatable process for ensuring router configurations are secure.

F-1, R-2, P-1. Periodically follow up to ensure the Enterprise
Networks organization complies with router standards and has a change
management system to document changes to routers.

F-2, R-1, P-1. Keep any applications and system access as part of
the computer security material weakness until the IRS has demonstrated an
effective, repeatable process for testing and correcting vulnerabilities.

F-3, R-1, P-1. Keep system software configuration as part of the
computer security material weakness until configuration management procedures
are implemented and working as intended in the UNIX environment.

2004-10-166

September 2004

01/15/06

09/15/05

The Taxpayer
Advocate Service Needs to Improve Case Management to Ensure Taxpayer Problems
Are Resolved Timely

F-2, R-1, P-1. Alert TAS managers that case advocates are not
closing cases after all actions are completed.

F-1, R-2, P-1. Justify the funding request for space for
anticipated new hires by maximizing the use of existing space to house the
new employees and determine the funding request based on anticipated needs.

F-2, R-3, P-1. Consider allocating rent funds to the operating
divisions to help ensure more efficient use of space and more communication
between the facility managers and the local operating divisions; consider
incentives and consequences to ensure better cooperation.

The Inspector General Act of 1978 requires Inspectors General to
report unreasonable refusals of information available to the agency that relate
to programs and operations for which the Inspector General has
responsibilities. As of March 31, 2005, there were no instances where
information or assistance requested by the Office of Audit was refused.

Disputed Audit Recommendations

The Inspector General Act of 1978 requires Inspectors General to
provide information on significant management decisions in response to audit
recommendations with which the Inspector General disagrees. As of March 31,
2005, there were no reports issued where a significant recommendation was
disputed.

Revised Management Decisions

The Inspector General Act of 1978 requires Inspectors General to
provide a description and explanation of the reasons for any significant
revised management decisions made during the reporting period. As of March 31, 2005, no significant management decisions were revised.

Audit Reports Issued in the Prior Reporting Period With No
Management Response

The Inspector General Act of 1978 requires Inspectors General to
provide a summary of each audit report issued before the beginning of the
current reporting period for which no management response has been received by
the end of the current reporting period. As of March 31, 2005, there were no prior reports where management’s response was not received.

Review of Legislation and Regulations

The Inspector General Act of 1978 requires Inspectors General to
review existing and proposed legislation and regulations and to make
recommendations concerning the impact of such legislation or regulations.
TIGTA’s Office of Chief Counsel reviewed 131 proposed regulations and
legislative requests during this reporting period.

Progress Has Been
Made in Improving the Financial Management of Reimbursable Work Authorizations

2005-40-006

Initial Results of
the Fiscal Year 2004 Earned Income Tax Credit Concept Tests Provide Insight
on Ways Taxpayer Burden Can Be Reduced in Future Tests (Taxpayer Burden: 19,769 taxpayers receiving untimely
replies from the IRS or that would not be subjected to the FY 2005 filing
status test)

The High Income Taxpayer
Strategy Was Effectively Implemented, Although Its Success Still Needs to Be
Determined

2005-30-011

Implementation of the
Collection Field Function Consultation Initiative Was Carefully Coordinated,
but Some Aspects Could Be Enhanced

2005-20-005

To Ensure the Customer
Account Data Engine’s Success, Prescribed Management Practices Need to Be
Followed

2005-30-010

The Internal Revenue Service
Is Making Progress in Addressing Compliance Among Small Businesses Engaged in
Electronic Commerce

December
2004

2005-30-013

Improvements Are
Needed in the Timeliness and Accuracy of Offers in Compromise Processed by
Field Offer Groups (Increased Revenue:
$135,000 for 11 taxpayers; Taxpayer Rights and Entitlements: $5,000 for 1
taxpayer)

2005-20-014

The Internal Revenue
Service Should Ensure the Root Causes of Business Systems Modernization
Performance Problems Are Successfully Addressed

2005-40-015

Application of the
Earned Income Credit Two-Year Ban Could Be More Consistent, Accurate, and
Clear to Taxpayers (Taxpayer Burden:
8,637 notices with unclear explanations and 3,235 taxpayers that either may
not have understood which years were banned or what was required to
recertify; Taxpayer Rights and Entitlements: 384 taxpayers with Earned Income
Tax Credit banned in error)

2005-40-017

The Health Coverage
Tax Credit Was Accurately Processed During the 2004 Filing Season

2005-40-018

Toll-Free Account
Assistance to Taxpayers Is Professional and Timely, and the Quality of
Information Provided Has Improved (Taxpayer
Burden: 38 incorrect answers; Taxpayer Privacy and Security: 14 calls not
authenticated; Reliability of Information: 14 non-authenticated calls not
included in the Customer Accuracy measure)

2005-20-019

System Requirements
Were Not Adequately Managed During the Testing of the Custodial Accounting
Project

2005-10-020

The Exempt
Organizations Function’s Market Segment Approach Needs Further Development

2005-40-016

The 2004 Filing
Season Was Completed Timely and Accurately, but Some Tax Law Changes Have Not
Been Effectively Implemented (Revenue
Protection: $3.3 million for 21,929 taxpayers; Taxpayer Rights and
Entitlements: $151.6 million for 286,169 taxpayers)

2005-40-021

Customer Service at
the Taxpayer Assistance Centers Is Improving but Is Still Not Meeting
Expectations

January 2005

2005-40-025

Opportunities Exist
to Improve Tax Software Packages

2005-20-027

The Method of Tracking
Corrective Actions for Known Security Weaknesses Has Not Been Adequately
Developed

2005-20-023

The Modernization
Program Is Establishing a Requirements Management Office to Address
Requirements Development and Management Problems (Funds Put to Better Use: $1.25 million)

Processes Used to
Ensure the Accuracy of Information for Individual Taxpayers on IRS.gov Need
Improvement

2005-20-036

Security Controls for
the Counsel Automated System Environment Management Information System Could
Be Improved

2005-10-037

The Department of the
Treasury’s HR Connect Human Resources System Was Not Effectively Implemented (Inefficient Use of Resources: $41 million;
Reliability of Information; $680 million of overstated benefits)

2005-20-028

The Internal Revenue
Service Has Appropriate Processes to Accept Modernization Program Software
From Developers

2005-1C-030

Compensation System
Audit

2005-1C-031

Report on Follow-Up
Audit of Labor Accounting System

2005-1C-032

Report on Application
of Agreed-Upon Procedures – Quick Closeout for Contract Number
TIRNO-95-D-00065, Delivery Order Number 0015

The Disaster Recovery
Program Has Improved, but It Should Be Reported As a Material Weakness Due to
Limited Resources and Control Weaknesses

2005-1C-034

Incurred Cost Audit
for Fiscal Year 2000 (Questioned Costs:
$245,116)

2005-40-039

The Earned Income
Credit Recertification Program Continues to Experience Problems (Funds Put to Better Use: $26.5 million affecting
14,800 taxpayers; Taxpayer Rights and Entitlements: $29.8 million for 36,800
taxpayers; Taxpayer Burden: 17,000 taxpayers unnecessarily audited, 50,000
taxpayers spending an average of 1 hour each to complete unnecessary tax
forms, and 480,000 communications to taxpayers that were incomplete,
inaccurate or unclear)

2005-20-042

While Progress Has
Been Made, Managers and Employees Are Still Susceptible to Social Engineering
Techniques

2005-10-051

There Were No
Administrative or Civil Actions With Respect to Violations of Fair Tax
Collection Practices in Calendar Year 2004

2005-1C-033

Accounting System
Deficiencies Found During Incurred Cost Audit

2005-20-050

All Small-Scale Information
Technology Projects Should Be Included in the Investment Inventory, and
Related Procurement Requisitions Should Be Properly Reviewed and Approved (Reliability of Information: $1.4 million in project
costs not accurately recorded)

2005-30-052

Procedures Regarding
the Failure to Pay Tax Penalty Result in Inconsistent Treatment of Taxpayers
and Hundreds of Millions of Dollars in Lost Revenue (Increased Revenue: $1.87 billion for 9.9 million
taxpayers) Note: monetary benefit projected over a 5-year period.

Opportunities Exist
to Improve the Effectiveness and Efficiency of the Automated 6020(b) Program (Increased Revenue: $534.8 million) Note: monetary
benefit projected over a 5-year period.

2005-10-054

The Criminal
Investigation Function Has Made Progress in Investigating Criminal Tax Cases;
However, Challenges Remain

Destroying old currency in the Treasury Macerator,
1905

appendix iii- tigta’s Statutory
Reporting Requirements

TIGTA issued 13 audit
reports required by statute dealing with the adequacy and security of IRS
technology during this reporting period. In FY 2005, TIGTA completed its seventh
round of statutory reviews that are required annually by the Internal Revenue
Service Restructuring and Reform Act of 1998 (RRA 98). The following
table reflects the status of the FY 2005 RRA 98 statutory reviews.

Reference to Statutory Coverage

Explanation of the Provision

Comments/TIGTA Audit Status

Enforcement Statistics

Internal Revenue Code (I.R.C.)

§ 7803(d)(1)(A)(i)

Requires TIGTA to
evaluate the IRS’ compliance with restrictions under section 1204 of RRA 98
on the use of enforcement statistics to evaluate IRS employees.

Audit fieldwork in progress.

Restrictions on Directly Contacting Taxpayers

I.R.C.

§ 7803(d)(1)(A)(ii)

Requires TIGTA to
evaluate the IRS’ compliance with restrictions under I.R.C.
§ 7521 on directly contacting taxpayers who have indicated they prefer
their representatives be contacted.

Reference No. 2005-40-040, February 2005

As in prior reviews, TIGTA could not determine whether
IRS employees followed proper procedures to stop an interview if the taxpayer
requested to consult with a representative. Neither TIGTA nor the IRS could
readily identify cases where a taxpayer requested a representative or the IRS
contacted the taxpayer directly and bypassed the representative. IRS
management information systems do not separately record or monitor direct
contact requirements, and the Congress has not explicitly required the IRS to
do so. TIGTA does not recommend the creation of a separate tracking system.

Filing of a Notice of Lien

I.R.C.

§ 7803(d)(1)(A)(iii)

Requires TIGTA to
evaluate the IRS’ compliance with required procedures under I.R.C.

§ 6320 upon the filing of a notice of lien.

Discussion draft audit report issued to IRS management.

Extensions of the
Statute of Limitations for Assessment of Tax

I.R.C.

§ 7803(d)(1)(C)

I.R.C.

§ 6501(c)(4)(B)

Requires TIGTA to include
information regarding extensions of the statute of limitations for assessment
of tax under I.R.C. § 6501and the provision of notice to
taxpayers regarding the right to refuse or limit the extension to particular
issues or a particular period of time.

Audit fieldwork in progress.

Levies

I.R.C.

§ 7803(d)(1)(A)(iv)

Requires TIGTA to
evaluate the IRS’ compliance with required procedures under I.R.C.

§ 6330 regarding levies.

Audit fieldwork in
progress.

Collection Due Process

I.R.C.

§ 7803(d)(1)(A)(iii) and (iv)

Requires TIGTA to
evaluate the IRS’ compliance with required procedures under I.R.C.

An evaluation of IRS’
compliance with restrictions under section 3707 of RRA 98 on designation of taxpayers.

Audit fieldwork in progress.

Disclosure of
Collection Activities With Respect to Joint Returns

I.R.C.

§ 7803(d)(1)(B)

I.R.C.

§ 6103(e)(8)

Requires TIGTA to review and certify whether the IRS is
complying with I.R.C.

§ 6103(e)(8) to disclose information to an individual
filing a joint return on collection activity involving the other individual
filing the return.

Reference No. 2005-40-041, February 2005

This is the seventh year
that TIGTA could not determine whether the IRS is complying with the
statutory requirements for responding to written requests from joint filers,
because both TIGTA and the IRS are still unable to readily identify joint
filer requests received nationwide. IRS management has decided not to
develop a new management control process to track joint filer requests. IRS
management information systems do not separately record or monitor joint
filer requests, and the Congress has not explicitly required the IRS to do
so. TIGTA does not recommend the creation of a separate tracking system.

Taxpayer Complaints

I.R.C.

§ 7803(d)(2)(A)

Requires TIGTA to include in each of its Semiannual
Reports to Congress the number of taxpayer complaints received and the
number of employee misconduct and taxpayer abuse allegations received by IRS
or TIGTA from taxpayers, IRS employees and other sources.

Statistical results on the number of taxpayer

complaints received are shown on page 35.

Administrative or Civil Actions With Respect to the
Fair Debt Collection Practices Act of 1996

I.R.C.

§ 7803(d)(1)(G)

I.R.C.

§ 6304
Section 3466 of
RRA 98

Requires TIGTA to include information regarding any
administrative or civil actions with respect to violations of the fair debt
collection provision of I.R.C. § 6304, including a summary of such
actions, and any resulting judgments or awards granted.

Reference No. 2005-10-051, March 2005

There were no administrative or civil actions with
respect
to violations of fair tax collection practices in
Calendar Year 2004.

Denial of Requests for Information

I.R.C.

§ 7803(d)(1)(F)

I.R.C.

§ 7803(d)(3)(A)

Requires TIGTA to include information regarding
improper denial of requests for information from IRS, based on a
statistically valid sample of the total number
of determinations made by the IRS to deny written requests to disclose
information to taxpayers on the basis of I.R.C. § 6103 or
5 U.S.C. § 552(b)(7).

Audit fieldwork in progress.

Adequacy and Security of the Technology of the IRS

I.R.C.

§ 7803(d)(1)(D)

Requires TIGTA to evaluate the IRS’ adequacy and security
of its technology.

Information Technology Reviews:

Reference Number 2005-20-004, October 2004

Reference Number 2005-20-005, November 2004

Reference Number 2005-20-014, December 2004

Reference Number 2005-20-019, December 2004

Reference Number 2005-20-023, January 2005

Reference Number 2005-20-028, February 2005

Reference Number 2005-20-050, March 2005

Security Reviews:

Reference Number 2005-20-027, January 2005

Reference Number 2005-20-036, February 2005

Reference Number 2005-20-038, February 2005

Reference Number 2005-20-024, March 2005

Reference Number 2005-20-042, March 2005

Reference Number 2005-20-069, March 2005

Appendix IV – Section
1203 Standards

In
general, the Commissioner of Internal Revenue shall terminate the employment of
any IRS employee if there is a final administrative or judicial determination
that, in the performance of official duties, such employee committed any
misconduct violations outlined below. Such termination shall be a removal for
cause on charges of misconduct.

Misconduct
violations include:

·Willful
failure to obtain the required approval signatures on documents authorizing the
seizure of a taxpayer’s home, personal belongings, or business assets;

·Providing a false
statement under oath with respect to a material matter involving a taxpayer or
taxpayer representative;

·Violating,
with respect to a taxpayer, taxpayer representative, or other employee of the
IRS, any right under the Constitution of the United States, or any civil right
established under Title VI or VII of the Civil Rights Act of 1964; Title IX of
the Education Amendments of 1972; Age Discrimination in Employment Act of 1967;
Age Discrimination Act of 1975; Section 501 or 504 of the Rehabilitation Act of
1973; or Title I of the Americans with Disabilities Act of 1990;

·Falsifying or
destroying documents to conceal mistakes made by any employee with respect to a
matter involving a taxpayer or taxpayer representative;

·Committing
assault or battery on a taxpayer, taxpayer representative, or other employee of
the IRS, but only if there is a criminal conviction, or a final judgment by a
court in a civil case, with respect to the assault or battery;

·Violating the
Internal Revenue Code of 1986, Treasury regulations, or policies of the IRS
(including the Internal Revenue Manual) for the purpose of retaliating against,
or harassing a taxpayer, taxpayer representative, or other employee of the IRS;

·Willfully
misusing provisions of Section 6103 of the Internal Revenue Code of 1986 for
the purpose of concealing information from a Congressional inquiry;

·Willfully
failing to file any return of tax required under the Internal Revenue Code of
1986 on or before the date prescribed therefore (including any extensions),
unless such failure is due to reasonable cause and not to willful neglect;

·Willfully
understating Federal tax liability, unless such understatement is due to reasonable cause and not to
willful neglect; and

·Threatening
to audit a taxpayer for the purpose of extracting personal gain or benefit.

The
Commissioner of Internal Revenue may mitigate the penalty of removal for the
misconduct violations outlined above. The exercise of this authority shall be
at the sole discretion of the Commissioner and may not be delegated to any
other officer. The Commissioner, in his/her sole discretion, may establish a
procedure that will be used to determine whether an individual should be
referred to the Commissioner for determination. Any mitigation determination by
the Commissioner in these matters may not be appealed in any administrative or
judicial proceeding.

Appendix v – DATA TABLEs
provided by the irs

The memorandum below is an IRS transmittal to TIGTA. The
tables that follow contain information exactly as provided by the IRS to TIGTA
and consist of IRS employee misconduct reports from the IRS Automated Labor and
Employee Relations Tracking System (ALERTS). Also, data concerning
substantiated I.R.C. § 1203 allegations are included. IRS management conducted
inquiries into the cases reflected in these tables.

[3] The
PRIME contractor is the Computer Sciences Corporation, which heads an alliance
of leading technology companies brought together to assist with the IRS’
efforts to modernize its computer systems and related information technology.

[4]The LIFE was introduced publicly in December 2002
as a streamlined alternative to the traditional full-scope examination process.

[5] This
initiative was more aggressive than LIFE in holding examiners accountable for
closing examinations. It directed examiners to meet specific dates by
establishing time periods for requesting and submitting tax records and
presenting and responding to examination results.

[6] The
gross tax gap is the difference between the amount taxpayers owe the Federal
Government and the amount they voluntarily and timely pay.

[7] IRC § 6020(b)
(2004) provides the IRS with the authority to prepare and process certain
returns for a nonfiling business taxpayer if the taxpayer appears to be liable
for the return, the person required to file the return does not file it, and
attempts to secure the return have failed.

[8]E-file
is a way to electronically file a tax return with the IRS using an authorized e-file
provider or personal computer.